In this paper we attempt to evaluate the quantitative impact of financial shocks on key indicators of real activity and financial conditions. We focus on financial shocks as they have received wide attention in the recent literature and in the policy debate after the global financial crisis. We...

Carry trades - a popular strategy in the foreign exchange market - are long positions in high interest rate currencies financed by borrowing low interest rate currencies. Such positions are held as long as i) there remains a significant interest rate differential between the two currency groups...

From a financial standpoint, the mechanics of the carry trade has been recently examined in Brunnermeier et al. (2009). They showed that shocks to interest rate differentials lead to carry trade activity and to significant reactions in the bilateral exchange rates vis-a-vis the US dollar that...